GC Friday Interview: Scott Price, Regional Director, Custom House Global Fund Services

With increased regulatory and investor demands, alternative funds are relying more on their administrators to meet these needs so that managers can focus on investment decisions. Scott Price, regional director in Chicago for Custom House Global Fund Services, an independent administrator based in Malta, explains how this relationship is changing.
By Jake Safane(2147484770)

With increased regulatory and investor demands, alternative funds are relying more on their administrators to meet these needs so that managers can focus on investment decisions. Scott Price, regional director in Chicago for Custom House Global Fund Services, an independent administrator based in Malta, explains how this relationship is changing.

What are the main topics you’re focusing on for 2014?

SP: I think there are two things going into 2014 that are going to be hot topics. Obviously the first one is FATCA. Most of our clients are looking to us for a FATCA reporting solution. That’s the first that we’re having a lot of discussions about. I think the second thing that we’re having more and more discussions about is clients looking to outsource more of their internal operations to their administrator. And that could be a whole suite of somewhat untraditional fund administration services like risk reporting as well as just key reporting—so a whole suite of outsourcing services but that are somewhat new to the administration world.

What are administrators doing to prepare for handling these new services?

SP: If you take FATCA, it’s a play of a few different things. It’s obviously a people play; we have to have people in place to look at the various [data] and to be able to make that into a format in order to report. So what we have done, we have partnered with a technology firm called Finomial to offer a FATCA solution to our clients. Now, clients have the ability to understand the demographics of their investors through an online portal that we issue to our clients. So it’s a technology play in the sense that we’ve had to get up on systems, and at the same time we’ve had to increase our investor services team to look at the new types of requirements for FATCA and, more importantly, give clients the support in order to file correctly every year.

How do you see the cost/benefit playing out between the upfront investment for these services and the business growth this will lead to?

SP: From a client perspective, for them to outsource more of the services they’re doing a series of things. They’re streamlining their internal operations more efficiently with their own administrator. I think that’s the first thing to point out. The second thing to point out from the manager’s perspective, and I think this is more important now than ever, is they’re stabilizing their cost model more. So things like FATCA, which would normally be a people play for the manager in terms of building out their investor services function to capture their data and report, they’re now outsourcing that to their admin to stabilize the cost associated with that new regulation.

From the admin side, we have to be nimble. We have to be prepared to improve our offering and constantly stay ahead of the curve. So if it’s regulatory, if it’s additional reporting, if it’s enhanced availability for reporting, we have to build those capabilities up. So it’s a mix between a few things.

How much can be outsourced? Is there a point when it becomes too much?

SP: More so now than ever before for managers, more effort needs to be put into research and not operations. So when they’re looking at their management company books they’re saying. “There’s certain services we can outsource that will have massive impact on our bottom line.” They have to be more focused going into to 2014 obviously on the capital raising side and the actual investment decision side; that’s their core competence, and outsourcing the operations to their admin seems to be more the natural play. We’re seeing some big moves in the industry where managers are outsourcing more and more of their operations, and I believe that trend will continue in 2014.

How will alternatives do overall next year? Do you think there will be increased allocation?

SP: A lot of the traditional long/short equity funds have had a very successful year. I do not see why they’re wont be an increased allocation into that asset class. Some asset classes have struggled over the last year, but what we’re seeing is a lot of the allocations are going into somewhat of the more traditional strategies. We’re definitely seeing that trend. And I think that that kind of plays to the performance of the traditional long/short equity fund whereas some of the other asset classes haven’t performed as well.

How much do you think allocation will increase for non-hedge fund alternatives?

SP: From the admin’s perspective, we’re seeing more and more enquiries from private equity and real estate funds that are wishing to outsource services to the admin. More so than ever before. I think one of the reasons, which I mentioned before, these long-term 10-year closed ended funds in the commercial real estate space for example, those types of funds and managers would do all of the admin themselves. They’re now looking to stabilize their cost model even more and those types of firms are outsourcing a lot of the administration to firms like us. So I’m not sure if there’s more allocation going to that asset class, but I believe from an admin’s perspective, we are seeing those types of funds approaching administrators looking to partner with them.

In one sentence, what’s your outlook for alternatives in 2014?

SP: From the administrator’s perspective, we’ve got to constantly be changing our service offering and enhancing it, and from the manager’s perspective, they’re still hunting for performance and capital allocation, and I believe that both trends will continue into 2014 and beyond.

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